Beat butter and remaining 2 teaspoons coffee extract in large bowl with electric mixer on medium speed until light and fluffy. Gradually add confectioners' sugar, beating until well blended after each addition. Add water; beat until light and fluffy.

Make an indentation in the center of each cupcake using the handle of a wooden spoon or a straw, making sure not to break through bottom of cupcake. Spoon 1/2 of the frosting into resealable plastic bag. Cut a small piece off one of the bottom corners of bag. Pipe frosting into each cupcake. Spread top of cupcakes with remaining frosting.